September 22, 2010

Antifraud Officials Defend Recent Enforcement Record

The heads of the federal agencies responsible for rooting out financial fraud told lawmakers today that they're doing all they can to bring cases stemming from the economic crisis.

During a hearing before the Senate Judiciary Committee, Assistant Attorney General Lanny Breuer said any cases that prosecutors haven’t brought suffered from lack of evidence, not from resources or a lack of will by the U.S. Department of Justice.

“We could go on and on,” Breuer said of the cases the department has brought. “There has been no lack of effort in our pursuit of fraudulent activity…but there is a big difference between pursuing fraudulent activity and proving it.”

Breuer and Robert Khuzami, the director of enforcement at the U.S. Securities and Exchange Commission, cited a series of recent prosecutions: Nevin Shapiro, who pleaded guilty in Newark, N.J., in connection with an $800 million fraud related to a non-existent grocery distribution business; Lee Bentley Farkas, former chairman of mortgage company Taylor, Bean & Whitaker, who has pleaded not guilty to committing $1.9 billion in fraud; and the wide-ranging insider-trading case against Galleon Group.

Khuzami said the use of wiretaps and other aggressive tactics has been essential in stepping up enforcement against financial fraud, including the SEC’s pursuit of the Galleon case. “There’s no substitute for the kind of wiretap work that was done in that case,” he said.

Lawmakers struck a skeptical tone during the hearing, noting that they expected many high-profile cases after appropriating millions more for investigations. The Fraud Enforcement and Recovery Act, which became law in May 2009, gave $330 million to DOJ and $40 million to the SEC over two years. President Barack Obama also established an interagency task force on financial fraud.

“Despite the new resources and renewed emphasis, despite the presidentially created task force, we’re now nearing the final quarter of 2010 without the sort of prosecutions that I had fully expected we would see by this time,” said Sen. Ted Kaufman (D-Del.), who presided over the hearing.

Breuer, Khuzami and Assistant FBI Director Kevin Perkins said the additional money has gone to good use. For example, Breuer said, the Justice Department has tripled the number of people who review applications for wiretaps, cutting in half the time such reviews take.